Impact of political risk to PH credit profile low – Moody’s

The potential impact of political risk on the Philippines’ credit profile is minimal, Moody’s Investors Service said on Thursday, with the outcome of the 2016 national elections unlikely to derail ongoing reform momentum.

While it remains unclear how much President Benigno Aquino 3rd’s successor will adjust changes started by the current administration, the debt watcher said none of the top candidates “represent an imminent departure”, particularly with regard to fiscal management reforms.

Moody’s made the assessment in a new report focusing on political risk among Asean countries. It said the potential impact varied significantly, with the likelihood of political factors affecting creditworthiness ranging from “Very Low” for Singapore to “Moderate +” for Thailand.

“Stability under the presidency of Benigno Aquino 3rd, who took office in June 2010, contrasts with the latter years of the two preceding administrations, which were fraught with political turmoil,” Moody’s noted.

“The extent to which the next leader will institutionalize or reverse reforms conducted by Aquino’s administration—especially positive changes related to fiscal management—is unclear,” it added, also pointing out that this is amplified by the fact that Philippine presidents can only serve a single six-year term.

“Nevertheless, our assessment of domestic risk in the Philippines at Low is in line with large democracies such as Indonesia and India, where policy challenges are often posed by democratic transitions,” it said.

In an outlook, Moody’s noted that presidential campaigns in the Philippines traditionally center on personalities rather than policies or party affiliation. In the run-up to 2016, none of the candidates “represent an imminent departure from the Aquino administration in terms of economic policy”, the debt watcher said.

The four main candidates looking to replace Aquino next year are Vice President Jejomar Binay, Senator Miriam Defensor-Santiago, Senator Grace Poe and former Interior and Local Government Secretary Manuel Roxas 2nd.

“The absence of allegations of large-scale graft during the current government has set the bar higher for control of corruption, signaling continued political stability in the next administration,” it added.

It said positioning ahead of next year’s elections had increased political noise and hampered—but not stopped—reform progress.

For instance, it noted that in January 2015, a failed mission to capture international terrorists led to the deaths of 44 policemen in Mindanao.

The uproar over the issue led to a temporary decline in Aquino’s approval ratings and threatened approval of the proposed Bangsamoro Basic Law, which is expected to help resolve a long-running insurgency on the southern island.

In a positive development, Moody’s pointed out that the government passed a revision to the Cabotage Law in July 2015 that liberalized the shipping industry and would help address logistical inefficiencies hampering investment.

Also, the passage of the Philippine Competition Act, described as an antitrust law two years in the making, will help underline policy predictability and regulation.

“The new overarching competition policy is consistent with the Philippines’ major trading partners, and could improve prospects for attracting investment,” Moody’s said.

The debt watcher also noted that Congress had approved bills strengthening the central bank’s powers and reform customs administration. It added, however, that the legislature was unlikely to approve all of Aquino’s priority measures before his term ends.

Moody’s currently rates the Philippines at Baa3, two notches into investment grade, with a stable outlook.

In Thursday’s political risk report, the debt watcher also scored Cambodia as “Moderate –“; Indonesia, “Low”; Vietnam, “Low”; and Malaysia, “Very Low+”. It noted risks for Brunei, Laos and Myanmar but did not set political risk scores.